Investing in Metals

Investment in metals is a common hedge against inflation and has been for quite some time. When you invest in metal, you’re sinking the present value of a dollar into a tangible investment unless you are indirectly investing in metals. There are many other ways to invest in and take advantage of metal trends and the fluctuations in the market by means of metal exchange traded funds (ETFs) and mining company stock. More often than not, metals will increase in value over longer periods of time with fluctuations in price trends over shorter periods. Longer term trends have definitely shown increases in value when looking at platinum, gold, silver, and copper.

Metals have been given much more attention over the past few years due to the economic downturn. An investment in metals such as gold, silver, or copper, can be beneficial especially in a global economy such as ours due to uncertainty about the future and preservation of value earned. What do we mean by this? The value of the dollar (i.e. purchasing power) continues to fluctuate over time. As things become more expensive (inflation), the purchasing power of that dollar you have in your pocket reduces. Many people buy metals to sink the value of their dollar into a metal in order to preserve that value. Metals can go down in price as there is risk in any type of investing, however, trends have shown that metals continue to increase in value and the dollar continues to decrease.

Another reason many people invest in metals, particularly gold, silver, and copper, is due to the fact that they are well known and are time tested means of investment and commerce. Metals have been traded amongst civilizations longer than paper currency as metals have been used for bartering purposes for thousands of years and are recognized globally as “holders of value”. The paper money we exchange for goods in this day and age is backed by the trust of the people. People trust that value is present when in reality, it is nothing more than paper.

"Spot price" refers to the price of metals via futures contracts traded on exchanges operating in a number of countries. In the US, the COMEX (Commodity Exchange) is a leading commodity exchange for precious metals and is a division of the NYMEX (New York Mercantile Exchange). The London Metal Exchange (LME) has a longer history and provides a platform for trading precious metals futures contracts as well as many base metal futures contracts. Established in 1877 and located in the heart of The City of London, the London Metal Exchange is one of the world’s premier non-ferrous metals market.

Spot price reflects market expectations of future price movements. Gold contracts on the COMEX are 100 troy ounce bars per contract and silver contracts are 5,000 troy ounces per contract. There are ups and downs in the market, but price fluctuation will always be present as long as there is a market. Gold and silver have continued to do well over the past few decades so take advantage of lower prices when the spot price dips.

Many predict a separation between “spot price” and true market price or the true value of metals. The majority of metal dealers across the world currently have their prices pegged to the spot price, however, some believe that people will one day realize the true value of physical metals (that value being much higher than spot) and the price of physical will skyrocket despite what the spot price is.

If you are looking to invest in a metal but cannot afford the high prices of platinum and gold, consider looking to silver and copper.